Your Right to Know

The 2014 fiscal year has come to a close, with Ohio’s budget nearly $800 million in the
black.

However, much of that money is headed toward tax cuts and a new Medicaid reserve fund.

This is the fourth straight year that the state budget has ended the year with a surplus. In
2013, the surplus was about $2.1 billion, allowing the state to fill the rainy-day fund to the
maximum $1.5 billion.

“I think it points to a desire by this administration to make conservative economic forecasts,
conservative revenue projections and try to be certain we make provisions for all expenses we
anticipate,” said Tim Keen, the state budget director.

A majority of the surplus developed because of significant Medicaid underspending over the
12-month period that ended on June 30. Tax revenue, driven by better-than-expected income-tax
receipts, also finished about 1 percent over estimates.

Tax revenue has been above estimates for each of the past four years, Keen said, though total
tax receipts are down from 2013 because of an 8.5 percent income-tax cut. That cut will grow to 10
percent this year, under provisions passed as part of the off-year budget bill in June.

Keen had anticipated a surplus this spring, which gave lawmakers the chance to pass additional
income-tax cuts and create a $300 million Medicaid reserve fund designed to cover potential
unexpected future costs associated with the federal Affordable Care Act.

“This year, we had significant Medicaid underspending, in part because of all the uncertainty, I
believe, surrounding the implementation of the Affordable Care Act,” Keen said.

Income taxes were 2.7 percent above estimates, which Keen attributed to an improving economy and
conservative revenue estimates.

Keen said less than $200 million in surplus money is not earmarked and will roll over into the
general revenue fund for 2015.

The tax-cut package, approved in June as part of the off-year budget known as the mid-biennial
review, doubles the state’s Earned Income Tax Credit for low-income Ohioans and increases personal
exemptions for those making less than $80,000 a year, combining for about $76 million in
savings.

But an analysis of the tax changes released yesterday by Policy Matters Ohio, a labor-backed
research group, found that 50 percent of the total savings in the tax-cut package will go to the
top 5 percent of income earners — those making more than $151,000 a year.

That’s because the bulk of the $400 million tax package consists of changes that mean bigger
dollar savings for those with higher incomes. It cuts the income tax by a percentage point and
expands an income-tax deduction for those who claim business income from 50 percent of the first
$250,000 of income to 75 percent.

The bottom 60 percent of Ohio tax filers, those making less than $54,000, will get about 21
percent of the $400 million tax cut.

The package “continues an unfortunate Ohio tradition of permitting or enlarging tax benefits to
special, narrow groups of taxpayers,” said Zach Schiller, research director for Policy Matters
Ohio.

The state budget office’s full report on fiscal year 2014 will be available next week.